How do you manage your budget?

[mdf]

Heath Insurance isn't really "Insurance".

Well, it may not be for normal maintenance, but it surely includes an insurance component for surgery and other big surprises.

To a large extent, the high-deductible plans separate the two components.

Actually, there is a third aspect of insurance, negotiating group discounts with the providers. Even if you pay out-of-pocket on a high-deductible plan, you pay less than the walk-up ticket window rate.

 

[Monique]

or get a Keurig on sale and make a cup of pretty good specialty coffee at home for under .50 except for once in a great while.

Keurig and its disposable plastic cups and (over the years) increasingly disgusting internals ... yuck. I do use one at the office, because that's what's available.

I'm pretty happy with a french press. You can get those for like $16. I do have an electric tea kettle because it makes me happy, and also I managed to melt the bottom out of a stovetop kettle once ... but you could also just boil the water on your stove and pour it in.

 

[Varmintmist]

I think these two points indicate that there are different mindsets, and perhaps even different wiring in our brains - I also find that cash just "disappears" and takes special effort to track. For example, I made two purchases the last time I was at the farmer's market. Peaches at one stand, tomatoes at the other. I can remember the price of the peaches - but for the life of me, no idea what the tomatoes cost, and no way to find out. So I can't even accurately document the cost in my budget spreadsheet. I made a guess. There are places like farmer's markets where receipts aren't necessarily available. I could, I suppose, document each purchase on the fly, or always put a set amount of cash in my wallet every day so that I could do the math - but this seems perverse.

Of course, you CAN in fact track debit cards digitally, so that's like cash with tracking. Except that cash is already out of your account, so it tends to "feel" like free money to me.

But if credit cards represent too much of a temptation, yes, get rid of them. (A little voice says - and what if you suddenly have an unexpected expense you can't afford? Your kid needs emergency health care and your insurance doesn't cover it? Maybe that's a bad example because hospitals will generally work with you. But there must be circumstances that are worse than debt, even at usurious interest rates.)

Regardless, I'm finding it's quite an effort to adapt to a new financial picture. I still haven't adapted my understanding of what constitutes a "small" expense. I'm sure retirement has a similar effect, or job loss - although with job loss, I hope most of us could expect to return to prior income levels. But of course, that's not always true.

Then there are those notices at gas stations saying that you shouldn't use debit cards because the authorization process will take a bite out of your funds. I haven't tested that - like I said, haven't had a debit card in years. I *assume* the money would go back after the purchase goes through?

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Okay, this is exactly my thought process. Nice to know a pro has the same thoughts ;-) .

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I've also done this. I in fact caught a fraudulent charge this way maybe 15 years ago via daily review. The bank reps were actually a little confused - they didn't know how to record a fraud charge that was detected before the statement went out. Things are very different these days. (That was a $3k charge followed by an attempt at a $17k charge. "Are you sure you didn't do this?" "Uh, no, I did not buy $17k of shoes in Hong Kong. Also, it would exceed my limit.")



I apologize. I didn't mean to nitpick your choices, although clearly I did. I agree that if it works for you, it is a good policy. I do like to probe in order to understand more. There are tradeoffs. Statistically, as a population, we may overspend with credit cards. Maybe I do, too. But in my case, my budgeting is mostly a game of pretend, anyway - I know very well that I have plenty of savings I could access if I blew my budget. But it would affect my retirement, which is very very very far away and thus hard to conceptualize. For me, cash, debit, credit card - they all feel equally nebulous. I suppose I could artificially limit my checking account so as to make the bite of all of these (debit charge, credit card bill, ATM withdrawal) more painful, but that feels extreme. But maybe it's not actually extreme, just a way to check myself. *ponder* This may be something to consider when I'm more than 6 months out from Eric's death. There has been a lot of change and pain, and I don't know that punishing myself for exceeding my budget for a given month is a great idea. But if I exceed my budget every month, it's a wakeup call. (Then there's stuff like having to pay for work expenses like flights and hotels, and being reimbursed a month later ... ) . Then again, again, why do I view "limit what's in checking, and make it a little more painful by having to transfer money in to pay bills" as punishment? Much food for thought.

Its not a nit pic, its the way people work. Everyone does it because there is no feeling of pain when using a CC. It is how we are wired. On a 200.00 food purchase, a car cup of gum or a water in the little cooler they have at the register defeats the cash back.
Like I said, you can use a CC, it doesnt bother me at all. I'm OK I know my way works.
Just understand that when you whip it out, take a breath and think about what you are getting w/o add ons. As for cash, if you do the Farmers Mkt thing all the time, put 50 or 100 in the purse for coffee and peaches and whatever. If you use it all, then you have no more to spend at the farmers mkt that month. That way, you KNOW what you are spending. Budgeting isnt pretend, and you dont budget after the fact, that is called reconciliation. A budget is written BEFORE you spend the money, then you are in control of where it goes.
One of the reasons you dont need to move money into checking is if you budget and use direct deposit, the only time you have to move money for bills INTO the checking acct, is if you spent the bill money for something else. You can have more than one checking and savings acct also.
You need to make some categories, like a real emergency fund. Real cash in a money market account that is 6 months expenses, food shelter heat lights gas to get to work expenses. If you have a mortgage, then it will be in the 20K range.
Pay off debt. Anyone who is paying a mortgage has NO idea that the air smells different when you walk into YOUR home.
how much goes to retirement savings. Max out the match in the 401K at work, then if you dont like the offerings, take the rest to a brokerage.
Vacation
fund for next car.
Make sure you make a category for fun, like lift tickets. You may rob Peter to pay Paul (within the realm of disposable income, IE no latte for a month for lift tickets) to do it but that is why you make the budget.

 

[Monique]

You need to make some categories, like a real emergency fund. Real cash in a money market account that is 6 months expenses, food shelter heat lights gas to get to work expenses. If you have a mortgage, then it will be in the 20K range.
Pay off debt. Anyone who is paying a mortgage has NO idea that the air smells different when you walk into YOUR home.
how much goes to retirement savings. Max out the match in the 401K at work, then if you dont like the offerings, take the rest to a brokerage.

For me personally, I have a good bit more than 6 months of run rate stashed away in liquid-ish form. I don't have a mortgage. My only debt is a 0% car loan - I could pay it off now, but there's no reason to do so. I hit annual contribution limits on my 401k.

There was a lot of discussion about whether or not it's financially optimal to pay off your mortgage. I suspect it's not, but I agree - it's a great feeling. Someone also pointed out to me (outside of this thread) that in a lawsuit or bankruptcy situation, your home is typically off limits. In that sense, it's almost unique (I think retirement accounts have similar protections).

The thing is, all of this exists because of my previous financial circumstances. A two person household with at least three times the income. And a large life insurance payment. I want to make sure I'm not frittering away my assets.

You have a good point about budgeting vs reconciliation. I have a monthly expense limit (as provided by my FA to align with my goals). My spreadsheet automatically deducts both necessary and recurring expenses, splitting them out to monthly payments (ie, 1/6 of my car insurance payment). So then I'm left with the remainder for "everything else." I've whittled down an enormous amount of "fat" that I used to pay for, but it's a work in progress. I suspect the thread subject I *really* wanted was "Please tell me how to spend less money but not change anything about my life." It doesn't work like that =/

I won't address the debit/cash vs credit thing, because it's been done to death in this thread by now.

 

[Seldomski]

Actually, there is a third aspect of insurance, negotiating group discounts with the providers. Even if you pay out-of-pocket on a high-deductible plan, you pay less than the walk-up ticket window rate.

Yes the dollar discount is rather extreme. Even if the procedure is not covered, your expenses can be considerably lower paying the 'network' rates. Like 70% discount lower. It's absurd. I don't know how the system functions at all. I guess it doesn't?

 

[Sibhusky]

Before/during college most items were in my parents name, for exactly the reason you listed above, they had a much larger credit line. Fast forward to a few years later, I'm looking to get approved for a mortgage...no credit = no loan.

She's run into a bit of this as well. But she had very irregular jobs between college and grad school, so it was tough to apply for a credit card, and her first car was bought with our cash and she paid us back as she could. (She did.) But of course that loan didn't count. So it was only as she took on a regular job and longer term apartment rentals that she started to build credit. She's got a car loan now, but she can't seem to get a second credit card. Maybe she should have taken one of those credit card deals that they throw at you in college that gets kids in trouble? The problem is, she had several friends in severe trouble, she might have joined them. But I think this will work its way out now as she becomes more regular in her life. She's working on paying down the car (a new hybrid, so it was a stretch) so that things look a bit better asset vs debt-wise..

I developed my own credit history back when they didn't want to give cards to women at all and frankly was in trouble with my first one. Not collection agencies, but had to quit one job and get two more to pay off my debt before grad school. Then push back against my own bank after grad school for denying me a credit card. (Especially maddening because they had granted my husband one and he'd never had a car loan or a credit crate before! Whereas I'd had both.)

I think it's always hard to get going on this. Even now, my FICO gets dinged with two seemingly contradictory flags:

• Too few accounts paid as agreed (and I pay them off every month, so it just means too few accounts, there's no issue with them being paid).
• Too many accounts with balances. (Which apparently means that my three cards all have balances)

So apparently it means they want me to get MORE cards, but don't have balances on them?

I don't call and bitch about these flags because I have a mid+800 score, so who cares? But such insanity is hard to combat when you are first starting out.

 

[Monique]

Yes the dollar discount is rather extreme. Even if the procedure is not covered, your expenses can be considerably lower paying the 'network' rates. Like 70% discount lower. It's absurd. I don't know how the system functions at all. I guess it doesn't?

Except that I'm pretty sure nobody actually pays the posted rates, because I've heard that people who don't have insurance get a lowered rate, too.

Yeah, it's a mess. It drives me nuts that your employer has such a great degree of control over what procedures and practitioners are covered, not to mention deductibles, OOP, etc. Of course, you could go out and get a plan on your own and pay the non-subsidized rates - but the benefits are already calculated into your pay, so you'd effectively be paying twice.

 

[Monique]

I developed my own credit history back when they didn't want to give cards to women at all and frankly was in trouble with my first one.

My mom was shocked by this, moving from Germany to the US in the early 70s. Dad had to co-sign for her to get a credit card. WT actual F? She had heard that women had it so great in the US; apparently not.

 

[Sibhusky]

My first card was at the store I worked at, and they knew what they were doing. Give a person who works in a store a card and a discount and you're going to rake it in. But it did give me a credit history. (And some of those clothes my daughter still wears long after I outgrew them!). But it was touch and go digging out before returning to school.

 

[Varmintmist]

As to the mortgage, when you stop paying payments, you stop paying interest.
You have money, not a amortization schedule.
No, you cant take a tax write off, you have to pay them. So you pay less than (mostly) 20% than you were paying before.... Hmmm, instead of paying 100 a month, I have to pay 20 a month... sounds like a raw deal.
You can never miss a payment.
The bank cant mess up and foreclose on you.
Your mortgage cant be bought by another bank so they can mess up the paperwork.
When you go to bed in your own home, you go to bed in your own home.
If you want to sell, the check is all yours at closing.

I dunno, what could be the downside........

It sounds like you are on or closing in on a good plan. Sounds like you were left pretty much debt free with a nest egg. Its a matter of goal setting. You got a plan, now work the plan. You will tweak it some as time goes on. It isnt always fun, sometimes you look at the other people with XXX and think that you need that, you dont. But you can have it later if you save for it.

 

[Monique]

It sounds like you are on or closing in on a good plan. Sounds like you were left pretty much debt free with a nest egg. Its a matter of goal setting. You got a plan, now work the plan. You will tweak it some as time goes on. It isnt always fun, sometimes you look at the other people with XXX and think that you need that, you dont. But you can have it later if you save for it.

Yes

If things had to go the way they went, then at least I was well provisioned when it happened. It was alarming to me how many documents started with, "Provide us with your new address ASAP." Clearly, the assumption was that most people have to move. I can't imagine doing that alongside the grief and the other millions of things that have to be done.

Actually, that's another thing about paying off the house vs. investment. I probably could have managed the mortgage payment, but it would have been a big bite. If I'd shoveled the money into investments instead, they could be at rock bottom when I needed the money to pay the mortgage. Now, when I look back, I am just so, so happy that we didn't move into a more expensive house just because we could. The two of us together could easily have afforded a much more expensive house, but while you might typically bounce back from unemployment ... when you get divorced or your spouse dies, that's permanent (modulo quickly getting married to someone with the same income level). A lot of women end up in a rough position when their husband dies. It's just not something you seriously think about ... not for the first few decades.

 

[Seldomski]

Paying off your house faster can be the right choice - it depends on the details of your mortgage, risk tolerance, and personal situation.

My wife and I have life insurance now mainly so the survivor has funds to pay the remaining mortgage.

 

[Varmintmist]

Yes

If things had to go the way they went, then at least I was well provisioned when it happened. It was alarming to me how many documents started with, "Provide us with your new address ASAP." Clearly, the assumption was that most people have to move. I can't imagine doing that alongside the grief and the other millions of things that have to be done.

Actually, that's another thing about paying off the house vs. investment. I probably could have managed the mortgage payment, but it would have been a big bite. If I'd shoveled the money into investments instead, they could be at rock bottom when I needed the money to pay the mortgage. Now, when I look back, I am just so, so happy that we didn't move into a more expensive house just because we could. The two of us together could easily have afforded a much more expensive house, but while you might typically bounce back from unemployment ... when you get divorced or your spouse dies, that's permanent (modulo quickly getting married to someone with the same income level). A lot of women end up in a rough position when their husband dies. It's just not something you seriously think about ... not for the first few decades.

And now you can shovel a large part of that payment into ret savings while having enough to LIVE (not exist) on.
A lot of people dont think about it and dont want to. Thats why they can be sold whole life. It sounds good and the guy says its good (good commission for him) instead of term and a plan to be self insured.

 

[Seldomski]

My old FA tried to sell me whole life insurance several times. It sounded like a scam to me. I could never get a good explanation, and he kept trying to sell it. So I fired him. The next FA did the same thing, so I fired him too.

I don't have a FA anymore...

 

[Monique]

Is "whole life" an annuity?

 

[fatbob]

Is "whole life" an annuity?

Whole life insurance is life assurance where the premium remains fixed for as long as you keep paying it. The catch is stop paying it and you get nothing.

As a person with no dependents and spouse you probably don't need life assurance at all. Whose going to need the payout - your dogs?

Overall it sounds from this thread to me that you are pretty sorted. Catastrophic injury/illness aside the biggest financial risk you probably face is getting remarried and it not working out and ending in divorce. But that's life.

 

[Nancy Hummel]

Whole life insurance is life assurance where the premium remains fixed for as long as you keep paying it. The catch is stop paying it and you get nothing.

As a person with no dependents and spouse you probably don't need life assurance at all. Whose going to need the payout - your dogs?

Overall it sounds from this thread to me that you are pretty sorted. Catastrophic injury/illness aside the biggest financial risk you probably face is getting remarried and it not working out and ending in divorce. But that's life.

Prenuptial agreements should be done in any marriage where people have significant assets that they bring into the marriage.

 

[Monique]

Whole life insurance is life assurance where the premium remains fixed for as long as you keep paying it. The catch is stop paying it and you get nothing.

As a person with no dependents and spouse you probably don't need life assurance at all. Whose going to need the payout - your dogs?

Overall it sounds from this thread to me that you are pretty sorted. Catastrophic injury/illness aside the biggest financial risk you probably face is getting remarried and it not working out and ending in divorce. But that's life.

Oh, yeah, I was just curious about the term.

I do not see marriage in my future, but I don't have a crystal ball.

I'm in a much better position than most widows. Just want to make sure I keep it that way. My old lifestyle would not be sustainable.

 

[Varmintmist]

Term is like car insurance, you pay it until you drop it or use it.
Whole life is any life insurance that has a "savings or cash value or investment" The thing is, if you do the math, for payment on a whole life policy, you can buy term and get more ins, and invest the rest in a money market and be farther ahead. They are garbage investment vehicles. It sux as a investment product but that is where the commissions are at which is why it is sold. As was stated before, most people dont think about this stuff and dont want to, so they see a potential 60K they go "Goodie, lets get out of here and stop talking morbid" In reality 60K might pay off most couples credit card bill and bury the person who died as long as its a small funeral.

Annuities are a whole lifeish plan. Depending on how long you live, they can pay off. It is a toss up though. If you put that same amount in the market and leave it alone, you will end up with more and you have control over it in retirement. I dont buy them and dont see where a annuity would be good for me. Run the numbers for yourself.

Life insurance is a misnomer anyway. It is Income Replacement Insurance. The ONLY reason to have it is if you have dependents that rely on your income and would be in hardship if that income ceased. If you bring home 50K/year, then you want to be able to replace that less what you use so your dependents dont have to worry about feeding themselves or as was mentioned trying to make a mortgage on 1/3 the income and having to sell at a loss and move.The goal is to become self insured, have enough that if you die the dependents will not struggle. That means you have to become net worth well off. Meaning you own a lot less than you owe,

That said, if you have 200K in whole life and you have any medical issues, dont drop it. Something is better than nothing.

If you have no or few assets, then even if you have no dependents, you should have a little insurance. You shouldn't make others pay to do away with your remains and settle the estate.

 

[Varmintmist]

My old FA tried to sell me whole life insurance several times. It sounded like a scam to me. I could never get a good explanation, and he kept trying to sell it. So I fired him. The next FA did the same thing, so I fired him too.

I don't have a FA anymore...

A financial advisor who tries to sell you whole life is a insurance salesman, not a financial advisor. The biggest hint is if the sign over the door says Nationwide, instead of Legg Mason. (or State farm instead of Edward Jones, you get the point) A FA should ask about life ins, and suggest an amount, and thats about it.